One common explanation why Europe had a worse crisis and weaker recovery than America: its companies depend far more on banks for financing than the capital markets.
Those banks have been in perpetually worse shape than US lenders, mostly because of bad decisions from officials in national governments and the European Central Bank.
The critics point hammer home their point with charts like this:
Liquidity and credit are not always best friends — Funding for Lending in the UK and the LTROs spring to mind. However, blaming liquidity alone for the lack of credit out there is obviously [expletives removed].
For one, banks can’t lend if they can’t find borrowers — although it might be unfair to blame borrowers who are seeing unappealing terms — and for two, central banks have poured a fair amount of liquidity out there with more available on tap.
MR. KOHN. Before we get illegal here, I am honored and pleased to nominate Ben Bernanke to be Chairman of the Committee…
They’re all here, released on Friday: transcripts of previously secret Fed meetings in the first year of the credit crisis. Read more
Time for more BIS-timates of international banking activity — this time looking at developments in the deleveraging turn among eurozone lenders in late 2011.
These stats from the Bank for International Settlements go up to the end of December. Predictably they show a massive pullback in credit throughout the banking system with Europe and the eurozone leading the way. Read more
The probe into the abuse of Libor during the financial crisis continues. Investigators are sorting through allegations of criminal intent and regulatory shortfalls, with three of the world’s biggest banks – UBS, Citigroup and Barclays – voluntarily approaching regulators with information about possible abuse of the rate-setting process by current and former staff, according to the FT.
Given the above it’s interesting to come across the following justification from JCD Rathbone (JC Rathbone Associates) as to why banks may have felt compelled to break the rules. From Tuesday’s Weekly Bulletin (our emphasis): Read more
No deleveraging because of our recapitalisation exercise, really — or if there is, you’ll hardly notice it. So says the European Banking Authority in a Thursday night release:
(Warning: pie charts follow) Read more
Greece is not printing its own money already. No drachmas are being issued by Greece, nor is there monetisation of public debt. However….
And with that rather tantalising intro — Stephane Deo of UBS blows the lid off something we’ve been wondering about Greece for a while. Read more
There’s a new ‘how is sovereign debt hurting you?’ question in the European Central Bank’s regular bank lending survey…
Dan Davies takes us to task over the ECB’s three-year liquidity to banks, and catalysing the (unsecured) funding market:
Update – FT Alphaville has heard that the answer to this question is in fact… yes. See below for more details.
The official EBA numbers on European bank capital shortfalls are out. In aggregate it’s €114.7bn. Read more
Ally Financial, the US lender that reeled in $17bn of US aid at the height of the global crisis, is weighing up whether to file for bankruptcy protection for its beleaguered mortgage lending unit, Residential Capital, the Wall Street Journal reported. The company is looking to stem the rot in ResCap, which has lost $555m in the past two quarters. One option being considered is a so-called strategic bankruptcy that would reduce Ally’s exposure and not derail the parent’s IPO bid. The development highlights how lenders are struggling to deal with the ongoing US mortgage mess.
The eurozone debt crisis has caused US banks to tighten lending conditions, according to the latest survey of loan officers by the US Federal Reserve, the FT reports. The intensification of Europe’s crisis in recent months has reversed the trend of credit easing seen since the end of the recession, with only five banks out of 50 saying they relaxed credit standards for large companies over the past three months. In addition, US branches of foreign banks expressed the most bearish lending terms as they raised interest rate spreads and shortened the loan durations, citing tighter liquidity and risk aversion. The survey highlights how US bank lending is one the “main channels by which the European crisis could spread to the US and shows that some ripples have already crossed the Atlantic”, the FT noted.
Eurozone banks selling assets in Emerging Europe – to tart up their capital ratios under crisis pressure – is not front-page news at the moment.
Frankly, we think it should be! Read more
The looming European credit crunch may not be the first thing on European leaders’ minds this weekend, but it’s coming, at least according to Citigroup.
Three of the bank’s European economists, Jürgen Michels, Guillaume Menuet and Michael Saunders, have looked at the recent ECB lending surveys, and in a note published Friday, they argue that a credit contraction is coming — with a eurozone recession not far behind. Read more
Whatever happens in the eurozone this week, banks will have new capital ratio targets. They are not going to raise enough actual new capital to meet them.
Ergo they flip the ratio and start burning off risk-weighted assets. Read more
With government finances still dealing with the aftershocks that are rippling out of the epicentre of the financial credit crunch, the world economy could do with a period of calm in which to heal.
Unfortunately, it is not going to get it. Read more
There’s been a bit of (somewhat post hoc?) concern in recent days over the cash crunch in Chinese interbank markets.
The one-week Shanghai Interbank Offered Rate went up, up… and then came down. Same stuff in the seven-day repo rate, which probably tells you more as it’s a more developed market than Shibor. That follows the Christmas Day interest rate hike, and could be the market reacting to heavier tightening ahead by the People’s Bank of China in 2011. Read more
There’s a fascinating new Cleveland Fed report making the rounds about the connection between depressed home values and the ability of small businesses to obtain financing.
We’ve delved quite a bit this year into the decline in small business lending, but here’s a new angle. Read more
Siemens plans to set up its own bank in a move that underscores how large industrial groups are seeking rapidly to reduce their reliance on bank financing after the credit crisis, the FT reports. The German engineering group said that it would use a banking licence primarily to expand its sales finance business but also to be able to deposit some of its current €9bn ($11bn) cash pile at the Bundesbank and to broaden its sources of financing.
Spanish officials have acknowledged the country’s banks and companies are having difficulty finding credit, according to the Wall Street Journal. Madrid now faces pressure to pursue deep structural changes to win back investor confidence. According to the WSJ, investors are particularly concerned that Spain would be unable to supply its banks with more capital, if needed, without emergency aid from the European Union and the International Monetary Fund. The FT says Spanish government bonds sold off sharply on the comments, which came from the Spanish Treasury secretary and Francisco González, chairman of BBVA, Spain’s second-biggest lender.
Call it the madness of markets or the easing of credit crisis indicators.
But high-yield debt, better known as junk bonds, is now trading almost at par value. Read more
There’s an interesting idea in a just-published Federal Reserve discussion paper by Steven B. Kamin and Laurie Pounder DeMarco, reports FT Alphaville. The paper asks: “How Did a Domestic Housing Slump Turn into a Global Financial Crisis?” The conclusion is that the global financial crisis was not caused by direct exposure to the US subprime market. Read more
That’s foreigners, as in non-United States. And it’s the thesis of MIT economist Ricardo Caballero that’s already setting the blogosphere aflame after it was highlighted by Time Magazine over the weekend.
Here’s the basic premise, as synopsised by Time: Read more
The current crisis has been compared to many a historical slump, including the 80s housing crash, the 90s Savings & Loan crisis, the panic of 1907 and of course, the Great Depression.
But this is the first time we’ve seen the crisis compared with ‘ye olde credit crunch of 1294′. Read more
How quickly markets forget. From UBS.
Presenting a new display at New York’s Museum of American Finance.
Just make everyone — including the banks — look attractively trustworthy.
From Rice University (HT Alea) Read more
One of the more interesting [read: useful] bits of Standard & Poor’s is their Global Fixed Income Research unit, led by Diane Vazza in New York.
Take these snippets from the unit’s latest report on the prospects for US high-yield debt (emphasis FT Alphaville’s): Read more
This is an arresting chart.